The Challenge of Being A Good Nonprofit (and LA Groups That Are Getting It Right)

Sunday September 15, 2013 by carolyn

To many people, the term "nonprofit" connotes "noble"--a frugal organization whose passionate (and often underpaid) staff are working hard to eradicate a vexing problem or provide a needed societal benefit--or a strongly-backed but well run organization marshaling relatively enormous resources at targeted challenges. This perception likely characterizes most of the nonprofits in the United States and certainly those that are profiled on this website.

But there are other nonprofits whose purposes do not seem to be primarily philanthropic; tax exempt organizations who are exploiting current law in order to advance the professional agendas of those in leadership positions, further political agendas, or simply, make money by skirting taxes while purporting to be charities.

In his recent book, With Charity for All: Why Charities Are Failing and a Better Way to Give, Ken Stern tackles this issue. 

Nonprofits are big business in the United States. In 2010, the sector had over $3 trillion in assets, employed nearly 13 million people and accounted for 10% of the economic life of the United States. Nonprofit organizations comprise a huge, almost entirely unregulated industry, where there are minimal barriers for entry, financial abuses, and a lack of accountability and focus on delivering results. Some nonprofits are well managed and can demonstrate their positive impact through reliable data; others are not and cannot.

Stern provides specific examples to support his position that the nonprofit world warrants additional scrutiny. He also observes that while the federal government "remains by far the largest bankroller of the charitable sector...billions are spent without clear guidance as to who and what works and who and what does not." Further, he cites examples of programs that have been proven ineffective that have been protected by politicians and lobbyists.

While most of Stern's book chronicles the shortcomings and abuses in the sector, he does provide recommendations for creating "a more effective charitable marketplace."

Advice for individuals:
• Give to maximize social impact
• Do your homework
• Follow the leaders
• Pool donations

Advice for government:
• Change its grant practices to reward only the most effective charities
• Create intermediary organizations with the necessary expertise to evaluate charities
• Establish a higher barrier for becoming a nonprofit
• Give charities an expiration date and an opportunity to renew if their value was confirmed by an external accreditation process

I am pleased to report that many nonprofits in Southern California have been pursuing some of the ameliorative strategies that Stern recommends. Social Venture Partners, for instance, pools investors' funds to support selected nonprofits and also sponsors the Social Innovation Fast Pitch. In addition, Focusing Philanthropy and Find to Fund conduct rigorous research on the profits that they feature and/or fund on their websites to assist donors in making their philanthropy decisions.

Funders, too, have raised the bar for grants by requiring demonstrated compliance with best practices in the field along with reliable data regarding impact. The Annenberg Foundation, Irvine Foundation, and California Community Foundation are just a few of the examples. In addition, organizations like REDF, Imagine LA, Spark, and many others, provide reliable data to demonstrate their social impact.

Do Good LA celebrates these and the other exemplary organizations in Southern California who are at the forefront of social change and are helping to create, in Stern's words, "a more effective charitable marketplace."